Portugal will look to raise €1.5-2 billion in a T-bill auction next week with 4-month and 12-month bills on the menu.
There is a huge gap in Portuguese borrowing rates from maturities in Feb 2013 (yielding 4.2%) to September 2013 (12.9%). The new bills will mature in March 2013 and up-sizing the sale suggests strong demand. The govt has said liquidity is skewing the market but large repayment obligations in June 2013 are the more-likely culprit.
The 12-month bills sold last month, maturing in Feb 2013, have been rallying since they were introduced, bringing rates down to 3.66% from 4.81%. Ominously, the Sept 2013 maturity initially rallied alongside the Feb 2013 maturity but that has stopped since the LTRO.
To me, the stronger demand for the upcoming bills suggests Portuguese banks are looking for somewhere to park LTRO money but they don’t want to extend past June/Aug 2013, where funding problems loom.
